European ruling sets UKVAT man reeling

A ruling by the European Court of Justice on how a hotelier should be classified for VAT is so confusing that British Customs and Excise admit even they don't understand it clearly.

Customs and Excise is taking legal advice over the ruling on a long-running case brought by a Torquay hotelier who claims he has wrongly paid up to £200,000 in tax because he was forced to register as a travel company rather than a hotelier.

The travel agent registration means VAT is paid on profits rather than income, which has disadvantages for those with seasonal businesses, like hotelier Terry Madgett of the Howden Court hotel. He has been forced to register as a travel company because he arranges coach parties.

Under the normal hoteliers' system, VAT rebates can be greater than VAT paid out, easing losses, but such rebates do not operate when VAT is charged on profit.

The court has ruled that hoteliers like Madgett must remain registered as travel concerns, but that the travel VAT should apply only to services brought in from the outside - such as the coach parties. Furthermore, the European court has referred the decision back to a British "national court" for a final decision.

Few seem to understand the decision fully, although a spokesman for Customs and Excise said the ruling was still being considered by lawyers, and it would - if possible - issue a business brief to hoteliers to clarify matters. But he added that it may be that a VAT and Duty tribunal would have to consider the issue before clear advice could be given.

by Keith Nuthall